Watching the US debt deadline

World looks on with trepidation

Watching the US debt deadline

World looks on with trepidation

The week gone by opened on a strong note and that was the only bit of positive news in the week. Reserve Bank of India (RBI) increased repo rates by not the expected 25 basis points but double of that 50 basis points, and spooked the market.

The BSE SENSEX lost 525.10 points or 2.8 per cent to close at 18,197.20 points. The NSE NIFTY lost 151.95 points or 2.70 per cent to close at 5,482 points.

British PM David Cameron (l) seems to be
asking US president, Barack Obama

The broader indices like the BSE 100, BSE 200 and BSE 500 lost 2.80 per cent, 2.79 per cent and 2.66 per cent respectively while the BSE MIDCAP lost 1.86 per cent and the BSE SMALLCAP lost 1.87 per cent. The BSE REALTY was a big loser with losses of 7.39 per cent.

Loser
In individual stocks, PFC was a big loser with a loss of Rs 24.95 or 11.93 per cent to close at Rs 184.15. The banking sector was also a big loser and State Bank of India lost Rs 152 or 6.09 per cent to close at Rs 2,342.
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In June quarter results, the trend continues to be mixed with a few results being good but the majority showing signs of cost pressures whether they are on account of raw material or interest costs.

Passing of costs to the buyer is just not happening and margins are under severe pressure. Last week, saw ITC post a good set of numbers and the share closed up with gains of 0.48 per cent at Rs 208.30.

Message
L&T Finance Holdings Limited closed its IPO and was oversubscribed 5.34 times. The issue received good support from retail investors and its shareholders. The issue price band was Rs 51-59 and the price finalised is Rs 52. The final price of Rs 52 becomes some sort of a discount to the discovered price.

Probably, the management of the company took a view it is better to price the issue at a lower price rather than see the share performing badly at the time of listing. One hopes that this sends a right message to promoters and merchant bankers of small and mid-size companies who will always price the company at the top end of the price band.

There was one listing last week, when the shares of Bhartiya Global Infomedia Limited listed on Thursday, July 28. The company had issued shares at the top end of the price band of Rs 82, even though the issue was subscribed a mere 2.06 times with zero subscription from the QIB category. In two days of trading, the share has lost a staggering 65.43 per cent, to close at Rs 28.35 against an issue price of Rs 82.

Issues
There is a bond issue from IIFL (India Infoline Limited), which, opens on August 4 and closes on August 12. The company is looking to raise Rs 750 crore in various options and durations offering a coupon rate of between 11.6 per cent and 11.9 per cent.

Looking at the recent success of the bond issue from Shriram Transport, there are as many as four bond issues expected in the next 10-21 days and investors will need to be careful in understanding the rating of these issues, the duration and what kind of liquidity these bonds would have at the market place.

GTL saw its promoter losing control of the company as one of its lenders; ICICI bank acquired a stake of 29.3 per cent on account of failure to repay its debts.

The bank acquired shares, which were pledged to it. Shares of the company rose were virtually flat for the week. In related news, VIOM is looking to acquire the tower business of GTL Infra. Going forward, it would be interesting to see whether GTL becomes a case of another Satyam or another Great Offshore.

Caution
The week ahead will see an important event in the US default deadline on Tuesday, August 2. The Senate needs to approve an increase in the borrowing limit failing which the US would default in payments.

One hopes that something like this does not happen but global markets are worried about this. Our markets are at very crucial levels and some sort of a big move is on the cards in either direction.

u00a0The market is likely to make up its mind this week. One needs to play the markets with extreme caution and any sharp dips could be used to do selective buying. Be cautious and play for the day.